December 9, 2004 4:37 PM PST

Cisco snags routing start-up

Cisco systems announced on Thursday that it has finalized a definitive agreement to acquire privately held BCN Systems.

Cisco had been an investor in the Santa Clara, Calif.-based start-up, which was developing IP routing hardware and software since it was founded. Cisco won't disclose how much of an investment it had in the company, but it was enough that it had to be disclosed in its quarterly filings with the Securities and Exchange Commission. The threshold for disclosure is 10 percent ownership. Cisco disclosed the investment and discussed its right to purchase the company in a Sept. 20 filing. The acquisition was completed on Thursday.

Cisco will pay roughly $34 million in cash for all outstanding equity interests of BCN. The acquisition price may be increased by as much as $122 million if BCN reaches certain milestones.

In 2001, Cisco entered into a similar deal with storage start-up Andiamo Systems. Cisco announced the acquisition of the company in August 2002. The product forms the basis of Cisco's storage switch portfolio.

"The addition of BCN's talent to Cisco's world-class engineering team will help drive continued innovation for Cisco's portfolio of routing products," Mike Volpi, senior vice president of Cisco's Routing Technology Group, said in a statement. "BCN's network infrastructure design and thinking are truly unique, and that is good news for our customers and the industry at large."

Playing with the new toy
Cisco wouldn't detail its plans for the BCN technology but did say that the company plans to incorporate the technology across its routing portfolio. According to Cisco, BCN's software is complementary to Cisco's existing operating software, and will allow the company to build on these platforms to add new features.

Some experts predict Cisco will use the new BCN technology to refresh the company's aging 7600 and 10000 edge router platforms, which are designed for the carrier market. Cisco introduced a new core IP router, the CRS-1, in May. And it announced a smaller version of that product earlier this month. Cisco developed new software for the CRS-1. It has publicly stated that it plans to extend the software to other router within its service provider product line.

"The 7600 and 10000 routers are getting really old," said Frank Dzubeck, CEO of Communications Network Architects, a consultancy in Washington, D.C. "So they need something to refresh the product line."

The service provider market is key for Cisco. Large telephone companies and Internet service providers are starting to build new IP networks to handle more broadband traffic and to carry new services like IP telephony. Cisco has already lost significant market share to competitor Juniper Networks in the past year.

Cisco seems serious about getting its technological edge back. Earlier this week it rehired Tony Li, the engineer who helped the company build its GSR 12000 core routers in the 1990s. Li, who left Cisco to help Juniper in its early days, went on to found Procket Networks in 1999. Cisco bought Procket for $89 million in June.

 

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